Off the chain: how blockchain and cryptocurrency are changing commercial real estate

May 11, 2018 | Daniel Smolensky, SIOR | President of the Chicago Chapter of the Society of Industrial and Office Realtors (SIOR) and Principal, Taurus Modal Group

A bitcoin mining operation, housed in an industrial facility.

Blockchain and cryptocurrencies, like bitcoin, are fundamentally changing how money changes hands. As their potential goes mainstream, it’s possible that commercial real estate may be among the top industries disrupted—in both the way we transact, and in the usage of surplus space. Picture an all-digital transaction closing, from deeds to funds and title filings. Picture a world without old-school tax stamps, and where wire transfers become the dinosaurs of electronic fund transfers.

All-digital commercial real estate transactions may not be a reality yet—but they are coming. At the February SIOR Chicago Chapter luncheon, two experts explained how these technologies can help commercial real estate brokers make money, and how to understand the technology itself.

New kids on the block(chain)

Blockchain carries the potential to simplify the intricate web of paperwork and funding that comes together to complete a commercial real estate transaction. “Blockchains are a new way of thinking about how information is stored,” explained Dave Conroy, an R&D Engineer for NAR’s Center for REALTOR Technology & CRT Labs. “Blockchains provide a verifiable and trustworthy record of events or transactions. It’s a shared ledger.”

In the same way that Google docs allow multiple users to view and edit the same document simultaneously, blockchains allow every stakeholder in a deal to access each aspect of the transaction in real time. All details in the transaction are stored publicly and permanently in the blockchain, providing fully transparent documentation of the deal.

Through his role at NAR, Conroy is conducting research on blockchain technology that provides CRE professionals the knowledge and tools to collaborate, organize and combine efforts to launch impactful, industry-wide blockchain applications. Conroy estimated that companies will likely achieve success with blockchain in three to five years, but “it probably won’t be ubiquitous for another decade.”

Striking gold: cryptocurrency data mining and industrial real estate

At its most basic, cryptocurrency is a new currency asset class supported by blockchain technology. Like Visa is a form of credit card, bitcoin is a form of cryptocurrency. Blockchain does for bitcoin what credit card processing technology does for Visa. According to John Heiderscheidt, Chief Compliance Officer at MDI Access, cryptocurrency is valuable because users can “… exchange it on existing exchanges for hard currency. It also has direct purchasing power.”

Bitcoin is gaining traction as a way to buy goods and services. The new question you may be asked at the deli counter is “cash, check, credit card or bitcoin?” Currently, Subway, Overstock.com and Microsoft all accept payment directly in bitcoin. Likewise, cryptocurrency carries potential to disrupt the commercial real estate world as it becomes more established as a payment acceptable for property purchases. With its shared blockchain ledger, the transparency offered by this form of currency is attractive to many who would like to simplify the closing process.

Meet your new tenants: bitcoin miners

Outside of its life in the digital world of blockchains, cryptocurrency mining has already become a significant demand driver for data center and industrial real estate. Bitcoin (the most well-known cryptocurrency) mining is the process of running specialized computer equipment that keeps digital ledgers running. That equipment has to be placed somewhere; therefore, bitcoin miners have become the newest class of industrial real estate users. Since that equipment has to run constantly to provide value to the bitcoin, data miners have been renting space in data centers to power the mining equipment. However, bitcoin miners usually don’t want to sign years-long leases, and they simply don’t need all the data center equipment available to them. The not-so-perfect fit opens up an opportunity for several real estate sectors.

Heiderscheidt suggested that industrial brokers begin marketing properties directly to cryptocurrency miners. Data mining machines don’t take up much space; each machine is just one square foot. Therefore, a 10,000-square-foot facility dedicated to powering data miners could host nearly 10,000 machines, each earning rent from the equipment owner.

In fact, bitcoin mining machines don’t even need to inhabit a building. Heiderscheidt’s company is marketing coinMINE pods, shipping containers that house dozens of mining machines and require just a few spaces in a parking lot. Brokers may consider leasing their under-used parking lot space to pod owners to bring in extra rent.

Of course, renting to data miners or leasing space to pod owners also requires sharing your electricity and connectivity with those tenants. The good news is in municipalities, states and regions where electricity is cheap—like the Midwest, Southwest and Pacific Northwest—partnering up with data miners provides brokers the opportunity to take a slice out of the crypto and blockchain pie.

Where do I start?

Though blockchain technology is in its infancy in the commercial real estate industry, its potential is huge. Learning more about it through NAR or other resources is the first step to envisioning how it might allow cryptocurrency to become part of your real estate transactions. And if you are located in a municipality with low electrical costs, you could drive demand for your property by offering space to bitcoin miners and other cryptocurrency users.

About the author

Daniel Smolensky, SIOR, is the current President of the Chicago Chapter of the Society of Industrial and Office Realtors (SIOR). He is also Founder and Principal of Taurus Modal Group. Based in Chicago’s River West, Taurus Modal Group is a commercial real estate firm focused on tenant-rep projects for office and industrial users.